Consolidating debts / debt management plans ....

With most lenders increasing rates over the last couple of weeks, it was a pleasant and welcome surprise to see the Coventry Building Society reduce theirs by up to 0.3%.  The lender already had good rates and the new highlights include a low 5 year fixed rate with minimal or no fees on re-mortgages.  These are rates certainly worth exploring! 

Many prospective clients coming through the doors at AToM towers over the last few weeks have been reviewing fixed rate options.  Uncertainty is a big fear factor within the market especially with regards to the Bank of England base rate and the national press installing more confusion rather than a level of calm when it comes to interest rate predictions!

We have also seen a vast increase in customers looking to consolidate debt or even look at debt management plans. Both can sometimes cause issues. If you consolidate unsecured credit in to your mortgage, although your monthly payments may be lower, you may be paying more for your debt over a longer term.

With debt management plans (DMP), or Individual Voluntary Arrangements(IVA), again, the lower monthly payments may help in the short term, but you may well find it hard to gain an approval from a lender to refinance at a later date. Lenders tend to shy away from DMPs and may not assist anyone who has been in an IVA unless it has been discharged, normally, for more than four years.  Advice should always be sort before entering in to these types of arrangements.

At AToM, we are independent and we will happily go through the pros and cons of changing any of your financial details before proceeding to conduct any credit searches or decision in principles. You need to be clear that it’s the right deal for you. If your current deal is still the best option for you, we will suggest you stay where you are.

Figures show the true picture

This week, I thought I would show some of the figures that highlight the financial state of our  economy and the daily impact it is having on the end consumer (figure estimates from creditaction):

-          318 people are declared insolvent or bankrupt every day (based on Q4 2011 trends). This is equivalent to 1 person every 62 seconds during each working day.

-          1,473 Consumer County Court Judgements (CCJs) are issued every day (based on Q4 2011 trends). The average value of a Consumer CCJ in Q4 2011 was £2,949.

-          Citizens Advice Bureaux in England and Wales dealt with 8,518 new debt problems every working day during the year ending December 2011.

-          93 properties are repossessed every day (based on Q4 2011 trends).

-          1,896 people a day reported they had become redundant between November 2011 and January 2012.

The average household debt in the UK (including mortgages) was £56,058 in February.  The average amount owed per UK adult (including mortgages) was £29,671 in February.  This was around 123% of average earnings.

The estimated average mortgage outstanding for the 11.2m households that carry mortgage debt stood at £111,358 in February.

The typical first-time buyer deposit in January 2012 was 20% (around £30,303). The average first-time buyer borrowed 3.20 times their income and the average first-time buyer loan was an estimated £121,212.

However, saving the best until last - a survey by Unbiased.co.uk has found that nearly half of all mortgage holders have failed to look at their mortgage arrangements in the last three years. 49% of borrowers admit that they have not reviewed their mortgage since the Bank of England’s Base Rate fell to 0.5% in March 2009.  Indeed, 56% of mortgage holders say that they are in fact unaware of the interest rate that they are currently paying on their deal!  Of those who do know their current rate, fixed mortgage rate holders are paying an average rate of 4.63%. However, around 42% are paying a rate of 5% or higher.  Yet, the average Mortgage Interest rate was 3.33% at the end of February!  I have to ask why?  When was the last time you reviewed your mortgage?

House prices up 2.2%! Positive news!

The Halifax House Price Index suggests that house prices increased 2.2% in March. They report
that the average house price now sits at £163,803. A spokesperson commented that the end of the Stamp Duty holiday period for First Time Buyers at the end of March probably helped
to increase sales and support prices.

A mortgage is the biggest debt you’re ever likely to take on, so do your homework and shop around, as you would for you weekly shopping! We are always surprised that someone will announce to the world that they saved £30 off the price of, say, a fridge or cooker, yet fail to apply the same research into their mortgage! If you have plans to apply for a mortgage in the
not too distant future, then keep an eye on your credit. Don’t miss or make late payments to any
provider. All financial institutions will base their decision initially on your credit history. If you have missed or late payments, or numerous credit searches (from multiple finance/mobile/car/home insurance applications), this could be detrimental to your ability to obtain finance at competitive rates. Even whilst shopping around for a new mortgage, be wary that many ‘institutions’ are likely to carry out a credit search on you. Make sure you stipulate at the outset of any mortgage conversation that you do not authorise any credit searches, until you agree you are happy to proceed with a specific product or lender. If you have not reviewed your credit search before, get it for free (30day trial period) from Credit Expert (see www.atomltd.co.uk for a link). It’s well worth a review and a good insight on how attractive you may, or may not, look to a lender.

Finally, we’ve been bombarded with visitors over the last few days as hoards of children embark on the Great Easter Bunny Hunt, organised by the Rotary Club of Horsham. It’s wonderful to see so many people taking part and obviously its superb fun for the children as they are spoilt with
chocolate, if they find the bunny’s name and carrot! We’ve also enjoyed some great enquiries from those parents who have been dragged, I mean accompanied, the children on their tour of the 24 participating shops! This event has certainly been worthwhile for all involved and created a great community spirit (ends Sunday 15th April).

Don't miss the rates, use a Broker

More mortgage product pulls this week resulting in rate increases. Both Nationwide and Accord withdrew products only giving one hours notice to book the funds. In short, this meant that we had an hour to upload a full application on to the lenders systems to book the rate and secure the funds. One minute over the deadline and the rates were lost. Add this to the recent shenanigans over booking funds with the Woolwich (limited funds released at 12am and gone by 12:01am!) and life as a mortgage broker has been far but dull of late, but incredibly long hours!

The Bank of England’s latest mortgage approval figures show mortgage lending fell by 12% in February. Loans secured on property fell from 108,767 in January worth £13.1bn to 95,976 in February worth 11.7bn. Within this figure loans for house purchase fell from 57,899 in January worth £8.7bn to 48,986 in February worth £7.1bn. I suspect March’s figures will return to an
increase as it was incredibly busy throughout the month!

In comparison, gross mortgage lending by building societies and other mutuals rose 28% year on year in February 2012, figures from the Building Societies Association data shows. New mortgage approvals were up 31% on February 2011 and with gross lending at £1.9bn. This sector of the market appears to have a huge appetite to lend and some great product innovation.

Interest only remains in the spotlight with suggestions from Unbiased.com that one in seven UK households are sitting on an interest-only mortgage with no repayment vehicle. The website suggests that 1.6m properties are simply paying off the interest each month and not repaying capital or saving anything towards paying off their mortgage debt in the future. This is a pretty scary and certainly something that requires a review and not left until ‘tomorrow’. Speak to a independer adviser and work out a repayment plan.

Finally, the Leeds Building Society are the latest to reduce interest only mortgages to 50% of the property value and the Co-Operative Bank have increased their Standard Variable Rate
(SVR) from 4.24% to 4.74%. I’m still unsure how this fits within our markets regulatory rules of ‘Treating Customers Fairly’…

Mortgage 'prisoners' need protection

I’m really trying to move on from the number of lenders shying away from interest only as a style of mortgage repayment offering, yet more and more keep joining the band wagon! Coventry Building Society followed Nationwide last week in restricting interest only lending to 50% loan to value. This week, Skipton Building Society has limited their interest only offering to 60% of the property value. However, they have been more positive than some, in that they will allow 60% on interest only and a further 20% on repayment, taking the total to 80% of the property value. Well done Skipton! This is a much better option than with those lenders who insist that anything over 50% must be all on a ‘repayment’ only basis. Customers must be allowed to take some responsibility for their own decisions in these matters.

Last week’s budget was something of an anti-climax. As we all sat waiting for the big fix to aid an increase in mortgage lending and a boost to property sales, only the NewBuy scheme really got a mention. We saw an increase to 7% stamp duty land tax (SDLT) implemented on properties of £2m and an eye watering 15% SDLT for those buying a property over £2m in a company
name. But that was it! Nothing obvious to help get the ball rolling for property sales in the middle sector. I’m also still unsure why the Government are concentrating on New Build
properties for First Time Buyers when there are, allegedly, over one million properties currently sitting empty in the UK and over two million people are sitting as mortgage ‘prisoners’ due to recent changes in lenders mortgage criteria making it nigh on impossible for them to change mortgages. I therefore beg to question where the responsibility may lay for this torrid state of affairs! As we’ve seen recently, lenders are hiking their Standard Variable Rates to existing customers and someone needs to protect those with nowhere else to go, otherwise there are more huge issues yet to come. Watch this space……..

Finally, house prices rose by 0.6% in February after falling for the previous two months, with the average UK house price now at £162,712, according to the Nationwide House Price index.

Visit our Lender day on 28th March

Would you like to know more about Short Term Lending / Bridging Finance / Chain Break Finance? If so, AToM is hosting a free to attend lender presentation event on Wednesday 28th March at 6.30pm at Horsham Park Barn. This is an open invitation to all Customers, Estate Agents, Solicitors, Mortgage Brokers, IFAs and any other parties who would be interested in learning more about this fast growing part of the mortgage/finance market to hear directly from the experts.

Many lenders in this area of the market offer loans up to 75% of the property value (sometimes higher if additional security is offered). These types of short term loan are calculated and charged on a daily/monthly basis. Some offer to roll up the interest (no committed monthly payment) and interest rates range from 0.75% per month upwards and are normally arranged over a period of between 1 to 18 months. Most will carry a lender fee and an assessment fee and some will include early repayment charges and possibly an exit fee.

However, for the right scenario, these short term loans provide a superb and speedy funding line.

Ideal scenarios include –

1) ‘Chain Break Finance’ - When a chain breaks, or you have not yet sold your property but found one you have fallen in love with, bridging finance may enable you to complete on the purchase before you have sold your existing home.

2) Refurbishment – allows you to buy and refurbish property quickly. A loan to support the purchase of a property on which you undertake refurbishment before it is eventually presented to a mortgage company or bank for long term re-mortgage finance, or sold.

3) Auction property purchase - Short Term Loans can be arranged very quickly and can be ideal where there are tight deadlines to meet. A typical 28 day completion from purchasing an auction
property is usually easily achievable. A pre-auction valuation is considered a must.

These are just some examples, there are many others, so do come along to our event on Wednesday and listen to the experts. Places are still available. Please call AToM asap on the number below to secure your seat, or email pt@atomltd.co.uk

FINALLY, as I write this column, I’ve just noticed that Nationwide are the latest lender to cap their interest only lending at 50% of the property value on all residential mortgages
(excludes Buy to Lets). This is with effect from Wednesday 21st March and all applications which exceed 50% of the property value will now only be considered on a repayment basis. Long
live interest only…!

..introducing the Retirement Mortgage

More lenders have joined in the latest trend of increasing their Standard Variable Rate (SVR). This is the Lenders own rate of interest, and the rate which a customer normally reverts to once their specific product (i.e fixed rate) period comes to an end. The latest change comes from Yorkshire/Clydesdale who increased their SVR from 4.59% to 4.95%. This was following Bank of Ireland (2.99% to 4.49%), RBS (3.75% to 4%) and Halifax (3.50% to 3.99%) over the last couple of weeks. These can affect some existing customers as well as new customers. The general consensus from the lenders was that the changes were necessary to bring them ‘into line’ with other lender offerings. Do you know what yours is? Maybe this is a good time to review your mortgage and the small print? We do tend to see someone lead the way and others follow quickly behind. The most recent example was the restricting of the percentage (of property value) someone could borrow on an Interest Only basis. Now we’ve seen the increase of SVRs. What’s next…? Life is rarely dull in the mortgage world!

On the positive side - we are seeing some of the smaller lenders looking to launch innovative products. Not necessarily looking for huge volumes, but looking to fill gaps in the market and this should be applauded. One such lender has reviewed the options available to those in retirement and above the age of 65. They’ve realised there’s a huge gap (unless it’s an equity release mortgage required) and have launched a variable rate mortgage product specifically designed to assist this type of consumer. This can be on an interest only basis and up
to any age. Income must be provable, whether this is from pensions, investments, rental income, even earned income or off-spring support and must fit the lenders affordability criteria. A max of 40% of the property value can be advanced and there are only redemption penalties in the first year. This makes it reasonably flexible. One final thing, I’m delighted that the lender has made this totally exclusive to AToM and it is the only product of its type in the current mortgage market! What a plug! To find out more about the AToM Retirement Mortgage, please call us, we’d be delighted to assist.